• AUD/JPY picks up bids to extend the previous day’s rebound from three-month low.
• RBA Minutes highlight the need for further monetary policy tightening.
• Yields recover amid mixed concerns about banking crisis, hawkish Fed bets.

AUD/JPY holds onto the previous day’s corrective bounce off a three-month low after the Reserve Bank of Australia’s (RBA) hawkish commentary, published early Tuesday morning in Asia. Adding strength to the cross-currency pair’s corrective bounce could be the latest recovery in the US Treasury bond yields amid mixed market sentiment.

As per the latest RBA Minutes, Further monetary policy tightening is expected to be required to bring inflation down. The statement also mentioned that a pause would allow time to examine the economy's prospects.

Also read: RBA: Further monetary policy tightening is expected to be required to bring inflation down.

On a different page, the mixed concerns around the banking turmoil challenge the previous risk-on mood and join the hawkish Fed bets to revive the US Treasury bond yields. That said, the US 10-year and two-year Treasury bond yields bounced off the lowest levels since September 2022 the previous day, mildly bid during the early Asian hours on Tuesday.

Talking about the risk, the UBS-Credit Suisse deal and the global central banks’ efforts to tame the liquidity crunch previously tamed the market’s pessimism. However, the details suggest no relief from the banking fallout and allow the yields to pare recent losses near the multi-day low.

Late Monday, analysts at S&P think that it is unlikely that some US bank failures will prevent policymakers from sticking to the task of taming inflation, reported Reuters early Tuesday in Asia. The global rating agency also mentioned that the decision to write off Credit Suisse's AT1 bonds may contribute to a higher cost of capital for banks. On the same line were comments from a Senior Swiss lawmaker who warned on Monday that “the UBS-Credit Suisse merger is an enormous risk.”

Amid these plays, the S&P 500 Futures print mild gains while tracking Wall Street’s performance.

Moving on, the cross-currency pair traders should pay attention to the risk catalysts and the US Treasury bond yields for fresh impulse.

Technical analysis

Nearly oversold RSI (14) challenges AUD/JPY bears even if a downside break of the three-month-old ascending trend line, close to 89.35 by the press time, keeps the pair sellers hopeful. That said, the late 2022 bottom surrounding 87.00 appears as the short-term key support.